ESG investing has reached an important juncture following an impressive growth spurt. What comes next will depend on the actions that asset managers take to deliver the outcomes promised to investors, fund selectors, and policy makers.

Much work remains to show evidence of the value provided and to address greenwashing concerns. The effort can prove rewarding though. Assets in dedicated ESG funds could grow from US$8 trillion in 2021 to as much as US$30 trillion by 2030. The industry would thus play a vital role both in the allocation of capital towards a more resilient economy and in addressing sustainability challenges. 

Competition for the potential US$9 trillion of net new flows through the end of this decade however is becoming more difficult. The complexity and costs of ESG implementation have risen, and fund selectors have begun to ask harder questions. New regulations in Europe have created a maze of requirements but have already improved the quality of disclosure, doubled the size of the market, and sped up the pace of change. Demand for thematic strategies has expanded rapidly and morphed with the sustainability trend, putting a new spin on the business as it evolves along values, risk, and impact dimensions. Net zero goals have also moved up the investor agenda, encouraging asset managers to develop more refined climate change solutions.